The Democrats’ Big Tax Problem

I never imagined I would suspect Jonathan Chait of political naïveté. But his recent post, “How To Fight the Tax Cut Wars,” leaves me no choice. Chait gleefully maintains that Democrats “hold the whip hand” in the upcoming battle in Congress over whether to retain the Bush tax cuts that provided a windfall for the richest Americans. If the Dems try to extend the cuts only for taxpayers with incomes under $250,000, Chait argues, the GOP will seem like lackeys of the rich for filibustering the bill. And if no bill passes, the nation would revert to the more equitable rates of the 1990s. Either way, writes Chait, “This debate puts Republicans in a position where they can’t win.”

Unfortunately, Chait’s reasoning is more clever than convincing. In his focus on short-term strategy, he ignores the burdens of ideology and history that weigh heavily on any politicians who seek to institute a more democratic federal tax system.

The only time income taxes were popular was when few Americans had to pay them. In 1914, the first year the 16th amendment went into effect, fewer than 400,000 people filed returns and, except for a brief period when the U.S. was engaged in World War I, only the wealthy had to do so until the 1940s. The highest rate was less than ten percent. This changed dramatically during World War II when the need for revenue was both urgent and insatiable. By 1945, most citizens were paying some tax—a grievance which helped Republicans win control of both houses of Congress a year later.

Ever since, Democrats have struggled to convert the argument that the rich should pay a good deal more than the poor and the middle class into law. Polls, like one which Chait cites, do occasionally show a general desire to raise rates on the wealthy. But at the same time, most Americans also consistently think the federal government wastes their money—even during the heyday of the Great Society in the mid-1960s—and consistently believe they pay too much. Time and again, the liberal argument for progressive taxation has lost out to the conservative cynicism about “big government.”

Anti-tax populism usually trumps the liberal kind that Democrats from Harry Truman to Barack Obama have articulated. “I’m here to declare to the special interests something they already know, and something they hope you don’t find out,” said Ronald Reagan in a 1985 Labor Day address delivered, unashamedly, in Truman’s hometown of Independence, Missouri, “Our fair share tax program is a good deal for the American people and a big step toward economic power for people who’ve been denied power for generations.” His “fair share” proposal cut rates dramatically for the wealthiest five percent while raising, slightly, the taxes most families had to pay.

This year, Democrats may be able to repeal the Bush cuts in some fashion, although their political weakness makes me dubious about that. But the only durable way to counter the conservative argument is to make a principled counter-argument. Namely, that the income tax funds institutions Americans either cherish or would not want to live without—the military, the national parks, the interstate highway system, agricultural subsidies, Medicare, the SEC, and the FBI. Rich people benefit as much as anyone else from federal largesse, if not more, and they can afford to pay a greater percentage of what they earn. It was Democrats who initiated the income tax, and they again need to assert a version of the moral case with which they began. “I have no disposition to tax wealth unnecessarily or unjustly,” said Representative Cordell Hull, a leading proponent of the 16th amendment, “but I do believe that the wealth of the country should bear its just share of the burden of taxation and that it should not be permitted to shirk that duty.” Or as Justice Wendell Holmes, no class warrior, put it, “Taxes are the price we pay for a civilized society.”

(Note: A fine popular history of the enactment and consequences of the income tax is Steven R. Weisman’s The Great Tax Wars.)